Consumer Spending Shrinks but Confidence Rises
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WASHINGTON
(Reuters) - Personal income tumbled unexpectedly in July and
inflation-adjusted spending shrank as government economic stimulus
waned, but consumer spirits rose this month, a hint the economy may
muddle through its woes.
Personal income fell 0.7 percent in July, the sharpest decline since
a 2.3 percent plunge in August 2005, when Hurricane Katrina hit, the
Commerce Department said on Friday. Analysts were expecting income to
hold steady.
At the same time, a big jump in prices pushed inflation to a 17-year
high, eroding what little spending power consumers had. Consumer
spending, which accounts for about two-thirds of economic activity,
rose 0.2 percent as expected, the slimmest gain since February, and
inflation-adjusted spending fell by 0.4 percent, the biggest drop since
June 2004 and the second straight monthly decline.
Consumer confidence hits its highest in five months in August,
however, posting an unexpectedly large recovery from depressed levels
with the help of moderating energy prices.
The Reuters/University of Michigan Surveys of Consumers said its
final index of confidence for August rose to 63.0, its highest since
March, from 61.2 in July.
"Consumers are certainly worried about the job and housing markets
but lower gasoline prices have given them some tangible relief and we
are seeing that relief expressed in the various consumer confidence
figures," said Lynn Reaser, chief economist at Bank of America Capital
Management in Boston.
The unexpectedly weak income and spending data combined with a jump
in oil prices and disappointing earnings to drive stock prices down. In
late morning, the blue chip Dow Jones industrial average was off more
than 1 percent.
Prices for U.S. government bonds, which react negatively to
inflation, moved lower, while the dollar held steady versus the euro
but slipped against the yen.
